Wage Interference by Government

Ludwig von Mises’s “Wage Interference by Government” is a short, single-author economic polemic, reprinted from Christian Economics. Its scope is precise: minimum-wage policy, union power, and the broader question of whether wages can be raised by political command. Mises frames the essay as a defense of the classical doctrine that real wage growth depends on capital accumulation, not decrees.

When in the nineteenth century the question was asked: What can be done in order to raise wage rates and thereby to improve the average standard of living of the most numerous class of the population, the economists answered: One has to accelerate the increase of capital as compared with population.

The opening move is historical and polemical. Mises contrasts the abuse directed at classical economists by reformers and socialists with what he sees as the vindication of their view in development policy: poor countries need more capital per worker. The inconsistency, for him, is that governments accept this logic abroad while denying it at home, where they treat wages as administratively adjustable.

They proceed as if the height of wage rates could be fixed ad libitum [at will] by government decree or by labor union pressure and compulsion.

The essay then turns to unions, arguing that their power is not merely contractual but political. Mises’s central claim is that government has granted unions a privilege unavailable to ordinary citizens: effective permission to use coercion against strikebreakers while public authorities remain “neutral.” This is his sharpest conceptual move, redefining the “right to strike” as a state-enabled suspension of equal legal protection.

What is today euphemistically called the right to strike is in fact the right of striking workers, by recourse to violence, to prevent people who want to work from working.

Mises links this political critique to a theory of capitalism as mass production. Against the view that higher wages simply transfer income from an idle class to workers, he insists that workers are also the principal consumers of capitalist production. This matters because wage policy cannot be understood as a simple struggle between profits and labor incomes; higher costs affect prices, output, employment, and the purchasing public.

Under capitalism, however, the masses of the working people are the main consumers of the products.

The second major section, “Above-Market Wage Rates,” gives the essay its analytical core. Mises states the labor-market mechanism in equilibrium terms: market wages coordinate the plans of employers and workers. If law or union coercion raises wages above that level, the result is not a general victory for labor but unemployment for marginal workers.

The labor market fixes wage rates at the height at which all those intent upon hiring workers can hire as many as they want and all those anxious to find a job can find one.

His argument proceeds by considering two routes. If firms raise prices to cover higher labor costs, demand falls and production contracts; if they do not raise prices, high-cost firms suffer losses and reduce output or leave the market. Either way, employment falls. The point is not that no worker can gain, but that coercive wage gains are selective and exclusionary.

Thus, whatever is done to impose wage rates higher than those the free unhampered market would have determined results in unemployment of a part of the potential labor force.

Mises also briefly addresses Keynes, presenting him as recognizing the same constraint but proposing inflation as a politically easier way to reduce real wages. Mises rejects this as impracticable in an “index conscious” age, where workers and unions understand price-level changes. The essay’s relevance lies in this combination of Austrian capital theory, legal-political critique, and anti-Keynesian wage analysis: it treats minimum wages and union privileges as paradigmatic cases of interventionism, producing visible benefits for some while displacing costs onto others.

Its final thesis is unequivocal. Wage earners as a class cannot be made better off by coercively raising money wages above market-clearing levels; sustainable improvement requires more capital per worker.

There is no other method of improving the well-being of the whole class of wage earners than by accelerating saving and the accumulation of new capital.